Q&A Hero

Q: Along an indifference curve,A) the marginal utility of all items is equal. B) the total satisfaction is the same.C) the prices of all goods are equal.D) the marginal utility/price ratios of all items are equal.

Q: Suppose someone offered you your choice of two equally risky annuities, each paying $5,000 per year for 5 years. One is an annuity due, while the other is a regular (or deferred) annuity. If you are a rational wealth-maximizing investor which annuity would you choose? a. The annuity due. b. The deferred annuity. c. Either one, because as the problem is set up, they have the same present value. d. Without information about the appropriate interest rate, we cannot find the values of the two annuities; hence we cannot tell which is better. e. The annuity due; however, if the payments on both were doubled to $10,000, the deferred annuity would be preferred.

Q: If marginal utility is positive but diminishing, thenA) average utility must be negative.B) marginal utility must be above-average utility. C) total utility must be positive.D) marginal utility must be more than total utility.

Q: Which of the following statements is correct? a. The PV of an ordinary annuity will be larger than the PV of an annuity due, other things held constant. b. The effective annual rate will always be greater than the simple rate except in situations where the periodic rate is equal to the simple rate. c. If you were borrowing money from a bank, and the simple interest rate was 10 percent, you would be better off if the bank used daily rather than quarterly compounding. d. If you were borrowing money from a bank, and the simple interest rate was 10 percent, daily compounding, you would be better off if the bank used a 365-day year rather than a 360-day year. e. $100 placed in a bank account which pays 6 percent will double faster if the bank pays interest annually rather than daily.

Q: The longer any price change lasts over time, theA) more difficult it is to alter quantity demanded.B) the more quickly quantity demanded will return to its original level.C) the longer the short-run equilibrium will continue to be the short-run equilibrium. D) more quantity demanded will change.

Q: Which of the following statements is false? a. If the discount (or interest) rate is positive, the future value of an expected series of payments will always exceed the present value of the same series. b. To increase present consumption beyond present income normally requires either the payment of interest or else an opportunity cost of interest foregone. c. Disregarding risk, if money has time value, it is impossible for the present value of a given sum to be greater than its future value. d. Disregarding risk, if the present value of a sum is equal to its future value, either r = 0 or t = 0. e. Each of the above statements is true.

Q: The marginal cost of pollution abatement is represented byA) an upward sloping curve. B) a downward sloping curve.C) a horizontal curve. D) a vertical curve.

Q: As the discount rate increases without limit, the present value of the future cash inflows a. Gets larger without limit. b. Stays unchanged. c. Approaches zero. d. Gets smaller without limit, i.e., approaches minus infinity. e. Goes to ern.

Q: Relative poverty refers to A) how a familyʹs income compares to the incomes of those around them. B) poverty levels at a stated income cutoff. C) the number of poor in one state relative to another. D) None of the above.

Q: You have determined the profitability of a planned project by finding the present value of all the cash flows form that project. Which of the following would cause the project to look more appealing in terms of the present value of those cash flows? a. The discount rate decreases. b. The cash flows are extended over a longer period of time, but the total amount of the cash flows remains the same. c. The discount rate increases. d. Answers b and c above. e. Answers a and b above.

Q: For a monopsonist the marginal cost of increasing its workforce will always be greater than the wage rate becauseA) there is not good factor substitution in a monopsony.B) the wage rate offered the newest employee must be paid to all workers.C) the industry will be a closed shop.D) a normal rate of return must be paid to the owner.

Q: Given some amount to be received several years in the future, if the interest rate increases, the present value of the future amount will a. Be higher. b. Be lower. c. Stay the same. d. Cannot tell. e. Be variable.

Q: Which of the following correctly describes the trend in U.S. union membership?A) Union membership has been decreasing steadily since the 1930s.B) Union membership decreased from 1930 - 1960, but has been increasing steadily since. C) Union membership peaked in the 1960s and has been decreasing steadily since.D) Union membership declined until the 1980s, but has been increasing steadily since.

Q: The additional cost associated with hiring one additional unit of some factor input, such as labor, is referred to asA) marginal physical product of labor. B) marginal revenue cost.C) marginal factor cost. D) marginal revenue product.

Q: The present value of $3,000 to be received in 5 years at a 10% discount rate is $2000. a. True b. False

Q: Perpetuities represent a series of even cash flows over a finite period of time. a. True b. False

Q: The hypothesis that regulators eventually adopt policies that benefit the producers in the industry is known as theA) capture hypothesis.B) producersʹ hypothesis.C) share-the-gains, share-the-pains hypothesis. D) itʹs-a-rip-off hypothesis.

Q: The present value of a future cash flow is the amount of money if invested today at particular interest would turn into the future value at maturity. a. True b. False

Q: Jane purchases snickle-dees only because her friends do. This isA) price-leadership. B) negative-sum game.C) positive market feedback. D) negative market feedback.

Q: The savings rate of individuals in the U.S. has trended higher since the 1980s and it is now higher than the savings rate of most other developed countries. a. True b. False

Q: If a firm that produces an information product uses marginal cost pricing, then the firmA) will earn negative profits.B) will earn profits equal to zero.C) will earn positive profits but could earn a higher profit by using a different method. D) will maximize profits.

Q: The future value of a cash flow is positively related to interest rate and negatively related to the amount of time until maturity. a. True b. False

Q: In general, the demand for the product of a monopolistic competitor isA) unitary elastic. B) relatively inelastic.C) relatively elastic. D) perfectly elastic.

Q: The effective annual rate of 5% compounded monthly is approximately 5.12%. a. True b. False

Q: Suppose a monopolistʹs costs and revenues are as follows: ATC = $45.00; MC = $35.00; MR = $35.00; P = $45.00. The firm shouldA) increase output and decrease price. B) decrease output and increase price.C) not change output or price. D) shut down.

Q: The post-audit is a simple process in which actual results are compared to forecasted results and any discrepancy indicates a change factors that are completely under management's control. a. True b. False

Q: Signals areA) used by economic decision -makers to inform others about their plans.B) the method by which government planners inform economic decision -makers about the types of decisions they should make.C) the method by which firms determine their profit maximizing quantity.D) compact ways of conveying to economic decision makers information needed to identify industries where more resources are needed.

Q: The post-audit two main purposes are to improve forecasts and to improve operations. a. True b. False

Q: TotalOutputTotalCostsTotalOutputTotalCosts100$500106$528101501107540102503108555103506109580104510110615105518111660Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10/unit. What is true when the firm produces 103 units?A) Total revenue equals $5,060.B) Total costs exceed total revenue by $403.C) Marginal revenue is less than marginal cost. D) Its total profit is $524.

Q: There exists an IRR solution for each time the direction of cash flows associated with a project is interrupted. a. True b. False

Q: Refer to the above figure. Marginal costs are represented by curveA) 1. B) 2. C) 3. D) 4.

Q: The NPV method implicitly assumes that the rate at which cash flows can be reinvested is the required rate of return, whereas the IRR method implies that the firm has the opportunity to reinvest at the project's IRR. a. True b. False

Q: A long-term loan that is given to a firm is known as aA) share of stock. B) bond. C) dividend. D) random walk.

Q: NPV and IRR will always lead to the same accept/reject decision for mutually exclusive projects. a. True b. False

Q: The economyʹs current rate of interest is 10 percent and a firm has $10,000 of owner -invested capital. Its total revenue is $5000 and the firmʹs explicit costs are $3500. From this we know that this firmʹsA) accounting profit is $500. B) economic profit is $1,500.C) accounting profit is $1,500. D) economic profit is $5,000.

Q: Along an indifference curveA) every combination of goods the consumer can purchase with their income is given.B) the prices of goods will change.C) utility increases as you move to the right.D) every combination of the goods give the same level of satisfaction.

Q: A capital budgeting project is acceptable if the rate of return required for such a project is greater than the project's internal rate of return. a. True b. False

Q: When total utility is falling,A) marginal utility is at a maximum.B) marginal utility is at zero. C) marginal utility is negative.D) marginal utility has decreased, but is now increasing.

Q: Using the discounted payback method, a project should be accepted when the discounted payback is greater than the project's expected life. a. True b. False

Q: An increase in the discount rate used in computing the NPV of a project will lower the value of the NPV for that project. a. True b. False

Q: Suppose that the absolute price elasticity of demand for hamburger is 1.15 and that the absolute price elasticity of demand for steak is 2.4. Then the absolute price elasticity of demand for beef will beA) less than 1.15. B) more than 2.4.C) between 1.15 and 2.4. D) equal to 1.15.

Q: Although the payback method ignores the time value of money, relying solely on this capital budgeting method will always lead to value maximizing decision. a. True b. False

Q: It is assumed that the marginal benefit of air cleanliness falls with the degree of cleanliness sinceA) the marginal cost of air cleanliness increases.B) air cleanliness is a public good and not a private good.C) the marginal utility of air cleanliness falls with the degree of cleanliness. D) the generation of pollution should be considered an externality.

Q: Relative povertyA) has been eliminated in the United States. B) will always be with us.C) has never existed in the United States. D) can be eliminated in the next 20 years.

Q: Effective capital budgeting can improve the timing of asset acquisition and the quality of assets purchased, thereby providing an opportunity to purchase and install assets before they are needed. a. True b. False

Q: Because we usually assume positive interest rates in time value analyses, the present value of a three year annuity will always be less than the future value of a single lump sum, if the annuity payment equals the original lump sum investment. a. True b. False

Q: The marginal factor cost of a monopsonist isA) upward sloping and the same as the supply curve.B) downward sloping when the supply curve of labor is upward sloping.C) upward sloping and rises faster than the supply curve.D) horizontal.

Q: Financial calculator and tabular methods use different mathematical formulas to solve time value of money problems, and that is why they always lead to different results. a. True b. False

Q: A business enterprise in which employees must belong to the union before they can be hired is called a(n)A) craft union. B) industrial union. C) closed shop. D) union shop.

Q: If we calculate a periodic interest rate, say a monthly rate, in order to get the simple annual rate, we can multiply the periodic rate by the number of periods within a year. a. True b. False

Q: The cost of hiring one more worker, ceteris paribus, is known asA) marginal revenue product. B) marginal physical product.C) marginal factor cost. D) marginal wage.

Q: The effective annual rate is always greater than the simple rate as a result of compounding effects. a. True b. False

Q: Regulators often adopt policies that benefitA) consumers and injure producers.B) the firms regulated rather than consumers. C) only the government.D) no one.

Q: When a loan is amortized, the largest portion of the periodic payment goes to reduce principal in the early years of the loan such that the accumulated interest can be spread out over the life of the loan. a. True b. False

Q: A tendency for a good to come into favor with consumers because other consumers have chosen to buy the item isA) price-leadership. B) negative-sum game.C) positive market feedback. D) negative market feedback.

Q: In an amortization problem where a debt is completely amortized, if we are given the values for PV, I, and N, then we can solve the problem despite having been given only three of the five time value variables involved. a. True b. False

Q: Firms that produce an information product experience short -run economies of operation becauseA) the firm will always produce in the decreasing portion of the marginal cost curve. B) of the U-shaped nature of the average total cost curve.C) of the U-shaped nature of the average variable cost curve.D) the average total cost of producing and selling the product declines as output increases.

Q: The major similarity between monopolistic competition and perfect competition isA) the shape of the demand curve.B) that both assume many buyers and sellers. C) price equals marginal revenue in each.D) both assume products are differentiated.

Q: Solving for the interest rate associated with a stream of uneven cash flows, without the use of a calculator, usually involves a trial and error process. a. True b. False

Q: We can think of inflation occurring over time as a type of discounting process where the present value of a sum today is diminished by reverse compounding over time. a. True b. False

Q: The monopolist will choose the price and output combination at which A) MC equals AR. B) MC equals MR. C) MC equals price. D) MR equals AR.

Q: The opportunity cost rate is only applicable if you as an investor actually have an alternative investment to compare. If you are making a decision about a single investment, the opportunity rate concept does not apply. a. True b. False

Q: In a perfectly competitive industry, any restrictions that prevent new firms from entering A) lead to negative profits. B) guarantee that all existing firms will earn exactly a zero profit. C) hinder economic efficiency. D) reduce the average cost of production.

Q: Suppose an investor can earn a steady 5% annually with investment A, while investment B will yield a constant 12% annually. Within 11 years' time, the compounded value of investment B will be more than twice the compounded value of investment A (ignore risk). a. True b. False

Q: TotalOutputTotalCostsTotalOutputTotalCosts100$500106$528101501107540102503108555103506109580104510110615105518111660Refer to the above table. This firm operates in a perfectly competitive market in which the market price is $10 per unit. What is its profit -maximizing rate of production?A) 104 units B) 106 units C) 108 units D) 110 units

Q: The greater the number of compounding periods within a year, the greater the future value of a lump sum invested initially, and the greater the present value of a given lump sum to be received at maturity. a. True b. False

Q: Refer to the above figure. Average total costs are represented by curveA) 1. B) 2. C) 3. D) 4.

Q: All other factors held constant, the present value of a given annual annuity decreases as the number of discounting periods per year increases. a. True b. False

Q: A legal claim to a percentage of a companyʹs future profits and assets is known as aA) share of stock. B) bond. C) dividend. D) random walk.

Q: One of the potential benefits of investing early for retirement is that an investor can receive greater benefits from the compounding of interest. a. True b. False

Q: If your business earns $10,000 in revenues, has explicit costs of $7,000, and implicit costs of $5,000, your accounting profit isA) $2,000. B) -$2,000. C) $5,000. D) $3,000.

Q: The process of discounting or finding the present value of a cash flow to be received in the future is really the reverse of compounding. a. True b. False

Q: A curve where every combination of the two goods being considered yields the same level of satisfaction is known asA) a marginal utility curve. B) a total utility curve. C) an indifference curve. D) a budget constraint.

Q: Disregarding risk, if money has time value, the future value of some amount of money always will be more than the amount originally invested, and the present value of some amount to be received in the future is always less than that future amount to be received. a. True b. False

Q: If marginal utility is positive but decreasing, total utility isA) decreasing. B) negative. C) increasing. D) constant.

Q: Cash flow time lines are used primarily for decisions involving paying off debt or investing in financial securities. They cannot be used when making decisions about investments in physical assets. a. True b. False

Q: Compared to the long-run absolute elasticity of demand, the short-run absolute elasticity of demand isA) smaller. B) the same. C) larger.D) either smaller or larger, depending on other factors.

Q: As we approach total pollution abatementA) the marginal cost to society falls. B) the marginal cost to society rises.C) the marginal cost to society equals the marginal benefit to society. D) the marginal cost to society falls but then rises.

Q: Benefits of the post-audit include all of the following except a. when decision makers are forced to compare their projections to actual outcomes, there is a tendency to improve. b. conscious or unconscious biases are removed. c. negative NPV projects are identified before they begin. d. forecasts are improved. e. all of the above are benefits of the post-audit.

Q: When poverty is defined by an relative real income level, what will happen to the poverty rate if the distribution of income is not perfectly equal?A) The poverty rate will increase forever.B) The poverty rate will eventually be zero.C) The poverty rate will always remain constant. D) The poverty rate will change, but always exist.